I have noted that technology brings disruption with massive value creation even though the companies that enable the value may not necessarily CAPTURE most of the value. I cited the challenge for tax agencies around Africa as Skype and Whatsapp enable great connectivity value for users even as they decimate the business models of telcos like MTN and Airtel which typically pay good taxes. Yes, as Skype and Whatsapp redesign the communication sector, the value they have created are not effectively captured by them monetarily.
Nigeria is not paying attention to the potential risks of value destruction to the economy which Internet will bring to the nation. We will continue to see the erosion of tax Naira as more industries are disrupted. The telcos are first, but our banks are not immune. If the banks face this problem and fail to compete, the tax Naira will go as more value will be destroyed.. The challenge is that value is destroyed, and our local digital companies do not actually drive the destroying process – most times, foreign firms do and get the value. I project that Internet will erode more than 17% of Nigeria’s total tax revenue over the next decade. This does not mean that the absolute tax revenue will drop, rather, some sectors where government makes money, via tax, will earn less. If the telcos earn less because of OTT, they will pay lesser tax. Period. But government can still get more artisans and farmers to pay tax (I want to make that clear – my prediction is not the absolute tax which can be compensated if more people join the tax paying base. I am focusing on taxes from those paying tax right now. While those paying now can drop, proportional to growth, the total absolute tax could be higher because of bringing more informal sector participants into formal sector).
Largely, if making an hour call from Nigeria to London with MTN costs you $25 and Whatsapp reduces that cost to $2 (your mobile broadband plan used), Whatsapp has not captured a lot of the value. Yes, out of $25, it captured only $0 since Whatsapp is free. However, it has destroyed $23 value for MTN and that $23 is dissipated from the enterprise side of the revenue equation. Sure, users get to keep their $23 and can use the same for other things. Of course, without Whatsapp, the person might not have even spoken for one hour which means the value creation and lack of capture may be activated by the very nature of the technology. Pre-Whatsapp, the user might have spoken for 2 minutes but with Whatsapp, that call is extended to 60 minutes.
Largely, my point is this: as you innovate, watch how you can CAPTURE parts of the value you create. If you unlock value and cannot capture much, you have helped the ecosystem but your business long-term may not be great.
Some companies have used proprietary hardware with exclusive software to ensure they capture value (think of Apple), some put subscriptions, licensing and other kinds of things. Of course, when you begin to do those things, over relying on freemium or on-demand revenue model, your scalable advantage drops.
When Value Is Not Monetary
Sure, it is not every time we move to fix market frictions that we must be looking for value captured in terms of money; value captured on helping humanity is even more important. We can just make great products and help the world: the Volvo seat belt innovation is a reminder that value cannot be bounded by financial revenue.
In 1959, Nils Bohlin, an engineer at the carmaker, created the three-point seatbelt, which became the standard for safety across the auto industry. Instead of filing patents and keeping the life-saving design proprietary, Volvo chose to evangelize the innovation (Fortune newsletter).
Another example is Google noticing vulnerabilities in iPhone and alerting Apple to fix them. Typically, one would have expected that Google would rejoice that Apple was going to bleed to death. But note yet, Google does not need the small bounty fee Apple pays bounty white hackers; it simply wanted the internet to be clean.
Apple said … the attack “was narrowly focused” and affected “fewer than a dozen websites that focus on content related to the Uighur community” rather than the “en masse” hack of iPhone users described by Google researchers. Apple also said it fixed the issue in February, within 10 days of being notified by Google.
Get the balance – some technology nexus have challenges. You can help users but you may not survive because despite your capacity to create value for users, you have not captured enough to remain a going concern. It is important your game plan understands what drives the mission, as you would like to be around to keep serving the same users. That can only happen if you capture enough value – whatever it may be – to sustain the operations.---
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